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13 littleknownwaystosavebigontaxes

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13 Little Known Ways To Save Big On Taxes

13 Little Known Ways To Save Big On Taxes

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  • 1. Mark Huber, CFP“Are you tired of feeling the tax man’s hand in your pocket?” “When it comes to taxes – it’s better to give like Scrooge!” http://WeSaveYouTaxes.com © Copyright 2009 Mark Huber, CFP 1
  • 2. Dont let Ottawa pick your pockets clean…here are –“13 Little Known Tax Strategies That Will Save You Money!”1 - Lend in the familyIncome splitting with a lower-income spouse is one of the few legalways a family can reduce its tax burden. So why not take advantage ofit?Indeed, loaning money to a lower-income spouse or another familymember is even more attractive since Ottawa introduced a prescribedinterest rate.In the past, attribution rules required you to report any investmentincome your spouse earned on money you lent him or her. Now youcan charge your spouse a set interest rate on money you lend,(currently 1%), and any resultant investment gains are claimed on hisor her returns-possibly at a lower tax rate.Lets say you lend $10,000 to your spouse to invest, at borrowing costof 1%. You have to report that interest as income, but anyappreciation in the investment, say, 7%, would be taxed in the handsof your spouse. Your spouse deducts the interest paid, thus payingtaxes on the net amount (6%) of the investment income.Over time, as investment returns continue to exceed the cost of theloan, more of the investment income shifts to the lower-incomespouse, where it grows tax-effectively. To make this strategy work,there must be a written loan agreement in place and your spouse mustpay interest charges before January 30 each year.Bonus: The interest rate stays at 1% as long as theres a balanceoutstanding. http://WeSaveYouTaxes.com © Copyright 2009 Mark Huber, CFP 2
  • 3. 2 - Swap your debt. Create an interest deduction by converting non-deductible interest into a deductible cost. How?Liquidate some investments to pay down your non-deductible debt(mortgage, charge cards, etc). Then borrow to replace thoseinvestments.Alternatively, as you pay down your mortgage this year, considerborrowing against the new equity in your home to invest those dollars.Both ideas will create a tax deduction for the interest costs since youllbe borrowing to invest.3 - Trigger some losses.Consider selling some investments that have dropped in value at aloss. Why?Because the loss that is generated can then be used to offset capitalgains you may have made – and paid tax on. Capital losses can goback 3 years and roll forward indefinitely…4 - Go with the flowFlow-through shares are a great way to combine a businessopportunity with tax savings. These are equity investments in venture-oriented companies-often resources or biomedical firms-that need cashfor research and development or exploration. Such companies receivetax write-offs from Ottawa in the hopes their discoveries will expandthe Canadian economy. Those tax breaks are "flowed through" to theinvestor, whose investment is tax-deductible.5 - Seek the best shelterNot all investment returns are equal. Youll pay your full marginal taxrate on the interest earned from fixed-income investments such asbonds, GICs and term deposits, for example, while equity-basedproducts are taxed at a lower rate. Stock dividends, for example,qualify for the dividend tax credit. So choose carefully whatinvestments to protect in your registered portfolio. For greater taxefficiency, allocate your most highly taxed investments to your http://WeSaveYouTaxes.com © Copyright 2009 Mark Huber, CFP 3
  • 4. registered portfolio; leave lesser-taxed holdings in your non-registeredaccount.6 - Insure yourselfWhen it comes to investing, life insurance isnt usually at the top of thelist. But maybe it should be. A universal life policy is a versatileinvestment vehicle that gives lifelong insurance protection to yourfamily and tax-deferred growth for your savings.Heres how it works.You make a monthly payment for the term of the insurance policy(e.g., 10 years). Part of your payment covers the insurance premium,and the rest goes into a tax-sheltered investment fund of your choice.However, as the years go by you can build tax-free investment assetsat retirement, one option available to you is that the money can beused as collateral to secure a bank loan that can provide tax-freeretirement income.When you die, the bank loan is paid off and the beneficiary receivesthe insurance payout and the investment funds tax-free.Its reason enough to get a policy if you have a need for insurance forother non-investment reasons.7 - Beat GIC rates with an annuity strategy.If you rely on GICs or similar interest-bearing investments for income,youre paying a lot of tax on that interest income. So consider this:Use the cash invested in the GIC to buy a life annuity, which canprovide you with more after-tax income than the GIC.Part of the reason for this is that youll be receiving a return of yourcapital over the life of the annuity, and that capital is not taxable.Then, to replace that capital so that there is something left for yourheirs, use some of the additional cash flow youll be taking home tobuy a life insurance policy for the amount of that capital you used topurchase the annuity. http://WeSaveYouTaxes.com © Copyright 2009 Mark Huber, CFP 4
  • 5. In most cases, youll still be left with more in your hands after taxesthan the GIC could provide.8 - Self-administered health plan.This strategy turns the conventional medical tax credit into a companytax deduction.Heres how it works: your company sets up a trust to fund a healthplan for its staff. Thats 100% deductible for the firm and tax-free tothe employees. If you opt for, say, $4,000 worth of laser eye surgery,your company pays the full amount and deducts it as a businessexpense.That saves you from personally shelling out that figure, and thenclaiming a lesser amount — as low as $2,000 — as a tax credit on yourpersonal taxes.9 - Own your car and bill the company.This one falls under the heading of "defensive driving". If youredriving a car leased by your company, this is a taxable benefit to youpersonally. And that means trouble for both your company andyourself if you havent been declaring the taxable benefit.If you ever get audited (and the Canada Customs and Revenue Agencyhas been bulking up), you could owe plenty. Should an auditor findyour company-leased vehicle is used only occasionally for business, allthose lease payments and expenses youve been claiming on yourbusiness return would be disallowed. That would leave you on thehook for all taxes due plus interest — as well as the taxable benefitsyou havent been including on your personal return.A lease plus expenses for a luxury car or SUV can run up to $12,000 —$14,000 a year. That means you could owe the CCRA an extra $5,700in taxes per year audited. And audits tend to cover at least threeyears.Many owner-managers are unaware of this hazard. Youre better offowning the car yourself and billing the company for related use. http://WeSaveYouTaxes.com © Copyright 2009 Mark Huber, CFP 5
  • 6. 10 - Consider a leave or sabbatical.Its possible for your employer to establish a deferred salary leaveplan, which will allow you to contribute up to one-third of your salaryeach year to this plan, for up to six years. You wont pay any tax onthat deferred salary until you take your leave or sabbatical, whichmust begin no later than six years after the deferral begins.11 - Opt for IPPS (Individual Pension Plans)Conceived in 1991 with business owners in mind, IPPs still remainunderexploited.But if youre aged 45 to 50 and have maxed out your RRSP, thisdefined-benefit plan is a great way to put away large chunks of cash ina tax-sheltered environment.Set up for you by your company, the plans benefits are twofold:contributions are tax-free to you and a tax-deductible expense for yourcompany. Investments held in the plan grow and compound tax-free,until you withdraw money when you reach retirement.Sound too good to be true? There are caveats.First, there are limits to your contributions, which are typically basedon your age, tenure and salary.Second, as a defined-benefit plan, Canada Revenue Agency currentlyrequires an IPP to grow by 7.5% annually. If your plan depreciates,your company must top up the account. If your plan returns more than7.5%, your contribution limit drops in the next year.12 - Change property ownership.Each family unit is entitled to its own principal residence exemption,allowing you to fully shelter from tax the gains on one principalresidence. Once a child is 18 years of age or married, he or she isconsidered to be a separate family unit. By purchasing a secondproperty in the name of an adult child, or transferring ownership of anexisting property to an adult child, you may be able to save tax as afamily by multiplying the number of principal residence exemptionsused. http://WeSaveYouTaxes.com © Copyright 2009 Mark Huber, CFP 6
  • 7. 13 - Freeze your estateIf you want to bequeath your business to your family with minimal taxconsequences, consider an estate freeze.The tax liability will be limited to the present value of the assets; anyfuture capital gains will be taxed in the hands of the new owners. Onecommon way of performing a freeze involves a reorganization of thefirms share ownership.First, you as the owner exchange your common shares for voting,redeemable preferred shares of the same value. A new class ofcommon shares is created for your children or grandchildren. Anyfuture growth in the business accrues to their shares, and any futurecapital gains tax liability will be deferred until those shares are sold.Because your preferred shares have voting rights, you still control thebusiness. Preferred shares can also provide dividends for retirementincome or be redeemed.So in summary: The 5 Pillars Of Tax Planning Are: Deduct, Divide, Defer, Disguise, & Dodge http://WeSaveYouTaxes.com © Copyright 2009 Mark Huber, CFP 7
  • 8. Mark Huber, CFPAbout the AuthorMark Huber is a proud Canadian living with his wife in scenic Richmond, BritishColumbia, Canada.For over 22 years, Mark has worked in the financial services industry. The focus ofMark’s financial planning advisory practice is focused exclusively to British Columbian(BC) Canada residents.Mark’s boutique planning practice works with a select group of clients who are allshare a passionate vision for creating true wealth and living their dream lives.Other Sites authored by Mark Huber, CFPhttp://HowToBeSetForLife.comhttp://HowToGetRidOfYourMortgage.comhttp://HowToUseInsuranceToCreateWealth.comFollow us on TwitterConnect with us on Facebook http://WeSaveYouTaxes.com © Copyright 2009 Mark Huber, CFP 8
  • 9. Contact Information:SetForLife Financial Services8380 Ash Street,Richmond, British Columbia, V6Y 2S3CanadaOffice Phone: (604) 207-9970Office Fax: (604) 207-9971E-Mail: askmark@WeSaveYouTaxes.com#2050 – 1050 West Pender StreetVancouver, BC V6E 3S7CanadaOffice Hours are Monday-Friday9:30am to 4:30pm PST.Or “by appointment” http://WeSaveYouTaxes.com © Copyright 2009 Mark Huber, CFP 9
  • 10. Copyright 2009 SetForLife Financial Services. All rightsreserved world wide.Neither Mark Huber, SetForLife Financial Services assume any liabilitywhatsoever for the use of or inability to use any or all of theinformation contained in Marks Web Sites, Blogs, emails, ebooks,Podcasts, audios, teleconference calls, reports, broadcasts andnewsletters.The information expressed and contained in Mark Huber’s Web Sites,Blogs, emails, ebooks, Podcasts, audios, teleconference calls, reports,broadcasts and newsletters are solely the opinion of the author basedon his personal observations and 22 years of experience in thefinancial services industry.Use this information at your own risk. Be responsible! Alwaysdo your own due diligence. -The End- http://WeSaveYouTaxes.com © Copyright 2009 Mark Huber, CFP 10